Request for Relief from Double Taxation Pursuant to the RP-Japan Tax Treaty

November 4, 1996 BIR RULING NO. 116-96 21 (a) 000-00 116-96 Showa Aluminum Manufacturing Philippines Corporation Unit No. 61, Sunrise Terrace Apartment 100 Perea St., Legaspi Village Makati City Attention: Mr . Kosho Abe President Gentlemen : This refers to your letter dated June 28, 1996 requesting in behalf of APA Associates relief from double taxation pursuant to Article 5(6) of the RP-Japan Tax Treaty. LLpr Documents submitted show that APA Associates, a corporation duly organized and existing under and by virtue of the laws of Japan with principal office at 8th Floor Izumikan Ichiban-cho, 9 Ichiban-cho, Chiyoda-ku, Tokyo, Japan entered into an Engineering Services Contract with Showa Aluminum Manufacturing Philippines Corporation, a corporation duly organized and existing under and by virtue of the laws of the Philippines, to extend its engineering services for the construction of the factory project of Showa Aluminum Manufacturing Philippines Corporation; and that the said contract is from July 1, 1996 to July 31, 1996 or for a period of one (1) month. In reply, please be informed that Article 5(6) of the RP-Japan Tax Treaty provides, viz: "Article 5 "(6) An enterprise of a Contracting State shall be deemed to have a permanent establishment in the other Contracting State if it furnishes in that other Contracting State consultancy services, or supervisory services in connection with a contract for a building, construction or installation project through employees or other personnel other than an agent of an independent status to whom paragraph (7) applies provided that such activities continue ( for the same project or two or more connected projects ) for a period or periods aggregating more than six months within any taxable year . However, if the furnishing of such services is effected under an agreement between the Governments of the two Contracting States regarding economic or technical cooperation, that enterprise shall, notwithstanding any provisions of this Article, not be deemed to have a permanent establishment in that other Contracting State." (Emphasis supplied) It seems clear from the foregoing that APA Associates has no permanent establishment in the Philippines, the contact it entered into with Showa Aluminum Manufacturing Philippines Corporation, being for a period of one (1) month only. Accordingly, income derived by APA Associates from the engineering services for the construction of the factory project of Showa Aluminum Manufacturing Philippines Corporation is not subject to income tax in the Philippines, pursuant to the above-cited provisions of the RP-Japan Tax Treaty. Neither is APA Associates subject to any other internal revenue tax prescribed by the Tax Code, as amended. However, it is required to deduct, withhold and remit to the Bureau of Internal Revenue income taxes due on the salaries of its employees in accordance with Section 21 (a) of the Tax Code, as amended. casia Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue